A local exchange trading system (also local employment and trading system or local energy transfer system; abbreviated to LETS or LETSystem) is a locally initiated, democratically organised, not-for-profit community enterprise that provides a community information service and record transactions of members exchanging goods and services by using the currency of locally created LETS Credits.[1]

LETS networks facilitate exchange between members by providing a directory of offers (and wants) and by allowing each a line of interest-free credit to each. Members IOUs are logged in a centralised accounting system which publishes a directory and balances visible to all members. In case of a default, the loss of value or units is absorbed equally by all members, which makes it a mutual credit exchange. For instance, a member may earn credit by doing childcare for one person and spend it later on carpentry with another person in the same network, or they may spend first and earn later.

The time-based currency mentioned in United Nations Millennium Declaration C6 to Governments was a UNILETS United Nations International & Local Employment-Trading System to restructure the global financial architecture.[citation needed]

Many people have difficulty adjusting to this different kind of money system. A conventional national currency which yields interest to savers and costs interest to borrowers incentivises different behaviours to mutual credit which has no commodity value and no interest.

Most groups range from 50-150 members with a small core who use the system as a way of life. After flourishing the in 1990s, the LETS movement is mostly now populated by the same aging people. Interest in local currency has moved on to other designs such as Time-based_currency and dollar-backed local voucher schemes.

On the whole the movement has been slow to adapt to the internet and to the possibility of networking together. Reluctance to engage with technology, a belief in decentralisation/localisation and lack of funds all contributed to this. Currently apart from flailing national organisations there are two LETS networks based on free software: Community Exchange Systems, and Community Forge

LETS are generally considered to have the following five fundamental criteria:[3]

Cost of service: from the community for the community

Consent: there is no compulsion to trade

Disclosure: information about balances is available to all members

Equivalence to the national currency

No interest

Of these criteria, "equivalence" is the most controversial. According to a 1996 survey by LetsLink UK, only 13% of LETS networks actually practice equivalence, with most groups establishing alternate systems of valuation "in order to divorce [themselves] entirely from the mainstream economy."[4][5] Michael Linton has stated that such systems are "personal money" networks rather than LETS.[3]

The first LETS required nothing more than a telephone, answering machine and a notebook.[6] Since then there have been several attempts to improve the process with software, printed notes, and other familiar aspects of traditional currencies.

Local people set up an organization to trade between themselves, often paying a small membership fee to cover administration costs

Members maintain a directory of offers and wants to help facilitate trades

Upon trading, members may 'pay' each other with printed notes, log the transaction in log books or online, or write cheques which are later cleared by the system accountant.

Members whose balances exceed specified limits (positive or negative) are obliged to move their balance back towards zero by spending or earning.

LETS is a fully fledged monetary or exchange system, unlike direct barter. LETS members are able to earn credits from any member and spend them with anyone else on the scheme. Since the details are worked out by the users, there is much variation between schemes.

LETS is not a scheme for avoiding the payment of taxation, and generally groups encourage all members to personally undertake their liabilities to the state for all taxation, including income tax and goods and services tax. In a number of countries, various government taxation authorities have examined LETS along with other forms of counter trade, and made rulings concerning their use.[citation needed] Generally for personal arrangements, social arrangements, hobbies or pastimes, there are no taxation implications. This generally covers the vast majority of LETS transactions.[disputed– discuss] Taxation liabilities accrue when a tradesperson or professional person provides his or her professional services in payment for LETS units, or a registered or incorporated business sells part of its product for LETS units. In such cases, the businesses are generally encouraged to sell the service or product partly for LETS units and partly in the national currency, to allow the payment of all required taxation. This does imply, however, that in situations where national-currency expenditures would be tax-deductible, LETS must be as well.

In a number of countries, LETSystems have been encouraged as a social security initiative. For example in Australia, Peter Baldwin, a former Minister of Social Security in the Keating government, encouraged LETSystems as a way of letting welfare recipients borrow against their welfare entitlement for urgent personal needs or to establish themselves in business.[citation needed]

Since its commencement over 20 years ago, LETSystems have been highly innovative in adapting to the needs of their local communities in all kinds of ways. For example in Australia, people have built houses using LETS in place of a bank mortgage, freeing the owner from onerous interest payments.[citation needed]

LETS can help revitalise and build community by allowing a wider cross-section of the community—individuals, small businesses, local services and voluntary groups—to save money and resources in cooperation with others and extend their purchasing power. Other benefits may include social contact, health care, tuition and training, support for local enterprise and new businesses. One goal of this approach is to stimulate the economies of economically depressed towns that have goods and services, but little official currency: the LETS scheme does not require outside sources of income as stimulus.

'Local exchange trading systems now exist in many countries. Currency exchange between countries is done automatically through the CES (Community Exchange Systems) if LETS members use the CES for their recorded transaction. On the CES such trading exchanges between countries are known as 'remote' trading.

Australia, in 1989 allocated $50,000 for the development of LETSystems, including the running of state conferences, the production of software, a LETSystems Training Pack, and assistance to Michael Linton to visit Western Australia. By 1995 there were 250 LETSystems in Australia, with Western Australia having 43 separate systems serving a population of 2.3 million (although actual participation is by only a tiny fraction of that population)[1] making it then the region with the highest LETS coverage in the world. South Australia also pioneered an "InterLETS" allowing members of one system to trade with members of other systems.

From around 2007, many Australian LETS groups started trading online using the Community Exchange System. The Community Exchange System allows new members to sign up directly, list offers and wants, and enter trades without assistance from the administrator.

In German speaking Europe there are lots of local "Tauschring", or "Tauschkreis" (exchange circles) networks which share all sorts of services. The Tauschring network in Germany provides software for most schemes in the German-speaking world, and CES now has over 250 participating associations, able to trade between each other with a process sometimes called intertrading.[citation needed]

LETS schemes have been proposed as a possible way to alleviate some of the human costs of the euro crisis in Greece, where high foreign debt repayments have resulted in rapid deflation of the economy. LETS schemes, it is proposed, could reinflate the internal Greek economy, allowing internal trade to be maintained even if internationally traded currency reserves are being drained for debt repayment.[9] This theory is beginning to be tested in the development of new LETS schemes in Greek cities such as Volos.[10]

In the Czech Republic, used to be a cyclos-server based in the city of Brno. It supposedly provides hosting and technical support for LETS communities and LETS Banking software-as-a-service. The original web site address was www.ATSGroup.cz/cyclos

The Netherlands has spawned a number of innovative concepts based on the LETS formula, some of which try to lower participation barriers by completely moving their exchange platforms online, like NOPPES.

In Switzerland an adaption of LETS, the Talent was established and quite successfully launched in 1992. This Talent spread out in Europe and was father of many other Talent-Groups in other countries, as mentioned above. Like in Germany there are Tauschkreise mostly operating with Cyclos Software. Also an on-line exchange platform called Easyswap was developed recently.

The United Kingdom has many LETS systems, many loosely affiliated to LETSLINK UK and some operating under the CES system, e.g. North London LETS. In the UK Skillsbox operates an online community system similar to LETS, letting users trade their skills and time for credits which can be spent within the online community.

In Japan, the Peanuts system is a LETS system in Chiba, near Tokyo. Approximately ten percent of all payments made at local stores are in the community currency (2002). The LETS movement saw its peak around 2002–2003, but since then it has been declining slowly[citation needed]. See also Fureai kippu.

In 2003 the Community Exchange System (CES) started operating an internet-based LETS in Cape Town, South Africa. This has grown into a global network of over 800 local exchange systems in more than seventy countries (2014), among them Australia, Finland, New Zealand, Poland, South Africa, Spain, USA, UK, Vanuatu etc. Many of these are former LETS groups but others are time banks and hybrids.